Reporting Requirements Ramp Up
Big news this week: California is advancing full supply chain emissions reporting by corporations. Due to the size of its economy, expect the rules to be adopted across broader jurisdictions.
Similar to the EU’s Corporate Sustainability Due Diligence Directive, the recently-adopted EU Deforestation Directive, and the upcoming sustainability disclosures for all financial products, California will be demanding traceability to enable reporting at the level of forests and farmland. One prominent corporation – Apple – has applauded the move.
Apple is also demonstrating how cutting corporate emissions is a delightful exercise.
Along the Spectrum
At the other end of the ‘fun in emissions reporting’ spectrum lies programs like this beast, which reeks of ambiguity, legalese, confusion and excessive detail. It’s like it was designed to make the people responsible for implementing it want to quit their jobs (and go work for Apple).
Granted it naturally is hard for people to accept demands to change. But when individuals and corporations make up stories about how ‘it’s all going to be too expensive and will just go away someday’, they’re putting themselves at considerable risk of attack: from investors, customers, and regulators.
Legislation in massive markets like California and Europe do not just go away. These regulations were years in the making, they have the support of politicians and voters, and while they may not be perfect, they’re working to shift the thinking of business leaders.
According to a report for investors distributed by BMO Capital Markets last week, “despite the pushback on ESG in some parts of the market, ESG information and analysis is becoming embedded in how businesses plan, invest, and compete.” They cite the recent Bloomberg and Adox Research survey that revealed over 90% of investors across the globe plan to boost spending on ESG data next year.
Given all the new reporting regulations coming, companies of any real size must accept that there is no longer a choice. That doesn’t mean emissions reporting up the supply chain is going to be easy, and it certainly won’t be free – but it is possible.
Case Study
For example, in the grain business in western Canada, merchants are highly resistant if not outright refusing to provide Scope 3 emissions data to food brands. They get away with it because their cost structure is highly efficient compared to the alternatives for sourcing grain into food processing plants.
The reasons for this resistance were reviewed in an earlier report about ESG in Agriculture, which out of the 70 issues published in 2023, had one of the highest open rates within the Prairie Routes Research body of work. Jumping on the strategic market share opportunities that lie ahead for commodity businesses has been another key theme this year.
Big thanks to all you readers and subscribers out there! I deeply appreciate your engagement and support. Brenda
Capturing Scope 3 Emissions on Grain Ingredients
High-input, broadacre monocropping is typically done with machinery that captures data on field passes, applications, fuel use and other sources of Scope 3 emissions. Connecting that machinery to a platform for reporting and aggregating Scope 3 emissions data isn’t happening yet, but the technology is close to making the process simple and inexpensive.
Those types of farms are at risk of losing market access and/or facing market price discounts in the years ahead, related to all of the regulations and investor re-positioning referred to above. Farms that are intercropping, on the other hand, will have data to share that demonstrates reduced emissions in producing grain crops, along with increased biodiversity and improved soil health.
Enter: The Broker Note
There’s a tried-and-true tool called a ‘broker note’ that is inserted in grain contracts between sellers and buyers by a third-party cash broker in the process of matching up and supporting a transaction through to execution. Cash brokerage work has the most value in new, small, niche, and/or thin markets, where it’s not as easy to liquidate farm inventories as it is for canola, wheat, corn and soybeans.
It’s been around forever and it’s common in many industries, so why couldn’t brokerage be used to enable food companies to source Scope 3 emissions data on primary ingredients? For consideration, here is a sample of the data capture that could form the foundation of an intercropping broker note.
Summary
More information than this would be shared in the process of planning for off-farm commercial cleaning and separation, pricing and logistics, but this captures all the data necessary to start a conversation. It’s a snapshot of farmers, food ingredients and field activities that differentiate crops with more diversity behind their production, less emissions, and superior soil health.